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Revisiting Money - Interest Rate Relationship

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Listed:
  • Srivyal Vuyyuri
  • Ganesh S Mani
  • Chakrapani V Chaturvedula

Abstract

This paper tries to revisit the relationship between money supply and interest rates. Data for countries from 1981 to 1998 seem to support the positive relationship between the two variables as described by the Fisher equation. The empirical findings have been substantiated by a simple mathematical model. It incorporates the Fisher equation view as well as the liquidity effect and demonstrates that when the Fisher equation view applies at any time depends on how and how long the public expects it to last A surprise money change that is not expected to change future money growth, moves interest rates in the opposite direction and one that is expected to change future money growth, moves interest rates in the same direction.

Suggested Citation

  • Srivyal Vuyyuri & Ganesh S Mani & Chakrapani V Chaturvedula, 2003. "Revisiting Money - Interest Rate Relationship," The IUP Journal of Applied Economics, IUP Publications, vol. 0(3), pages 85-93, August.
  • Handle: RePEc:icf:icfjae:v:02:y:2003:i:3:p:85-93
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